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China sees backlash from companies, workers over mandatory social security payments
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Social media users expressed fears the ruling may further disadvantage small companies and workers already struggling to make ends meet.
BEIJING – A ruling by China's highest court has made it impossible for workers and their employers to waive social insurance contributions, triggering a broader discussion about inequalities in the welfare system.
The decision by the Supreme People's Court bars informal arrangements between companies and their employees to opt out of mandatory social insurance payments from Sept 1.
If enforced, the rules are especially a threat to small and medium-sized businesses, according to Societe Generale, which estimates they could increase costs to workers and employers by about 1 per cent of gross domestic product.
Alarm swept through social media in response to the verdict on Aug 1, as fears spread of layoffs and business failures if the ruling further disadvantages small companies and workers already struggling to make ends meet.
'Of course that is going to cause anxiety and panic,' Douyin user Tiandiren Zhuo Lawyer said in a video liked over 20,000 times.
How China manages its welfare system is key to restoring the confidence of households after the collapse of property prices, as authorities pivot to building a consumption-driven economy. The government has pledged to strengthen the safety net to improve people's ability to spend more and save less, with outlays in the first half on social needs reaching the highest in almost two decades.
Cracking down on mandatory social insurance contributions – which until now haven't been strictly enforced – is largely in line with the goals of offering more social support while also replenishing pension coffers as payouts increase with a surge of retirees.
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The court painted its decision as protecting workers' rights and didn't explicitly acknowledge the risks. The ruling 'effectively protects citizens' basic rights such as the right to social security, disperses employment risks for employers, and actively addresses the issue of an aging population, ' it said.
More than 20 million workers will retire each year over the next decade, and a record-low birth rate means fewer people are entering the labour force to make contributions to sustain pensioner benefits.
Such worries were palpable on social media. In a video viewed over 30,000 times on Weibo, a restaurant owner announced he was planning to close when the new rules come into effect because he couldn't afford the payments.
'This move will simply force employers to take from employee salaries to make the mandatory payments,' according to one popular Weibo post from user Awuxiaoxie.
Many workers voiced their desire to receive higher salaries rather than an uncertain pension in the future.
'The money I pay now is taken by the elderly – but if no one is having children, who is going to pay social insurance to support me?' asked one user on Weibo, another popular platform.
A 2019 study by the Chinese Academy of Social Sciences projects the main state pension fund, which operates on a pay-as-you-go model, will run out of money by 2035. The government in Beijing, however, can still make pension payments by using state funds.
China has built the world's largest social security network covering more than one billion people as the economy transitioned away from central planning, where workers enjoyed cradle-to-grave welfare provided by state employers.
But the system that has emerged resulted in huge disparities. Though there is a lack of official statistics, some analysts estimate state sector employees receive pension payouts that are around twice those of their counterparts working in the private sector.
Inequality is pervasive elsewhere, with the average monthly pension payout for private enterprise workers reaching 3,162 yuan (S$564) in 2023, much higher than the 214 yuan for rural residents and unemployed urban dwellers.
A rise in the gig economy has posed additional challenge to the system, as many flexible workers are left out of the system.
The impact of the regulations could be widespread, given how common informal agreements are among workers and employers. A survey of more than 6,000 firms last year found only 28 per cent were 'fully compliant' on social security support, according to the Zhonghe Group.
The financial burden on companies explains their motivation in waiving the employer's contributions. Once the loophole is plugged, some people argue the new rules would wipe out companies that struggle to stay competitive and survive only on low costs.
Should the impact prove to be 'significant,' the government will likely push back the implementation date or offer measures designed to ease the fallout on companies, according to SocGen analysts Michelle Lam and Wei Yao.
'If social security laws are strictly enforced, this will no doubt raise costs for employers who have avoided making contributions in the past, likely resulting in job layoffs or wage cuts to minimise the impact on their revenue,' they said in a report. 'Another shock to the labour market is the last thing policymakers would like to see, so this should lead to policy recalibration.' BLOOMBERG
